Correlation Between American Business and Zhihu

Can any of the company-specific risk be diversified away by investing in both American Business and Zhihu at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining American Business and Zhihu into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between American Business Corp and Zhihu Inc ADR, you can compare the effects of market volatilities on American Business and Zhihu and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in American Business with a short position of Zhihu. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Business and Zhihu.

Diversification Opportunities for American Business and Zhihu

0.0

Correlation Coefficient

American Business  Zhihu

Pay attention - limited upside

The 3 months correlation between American and Zhihu is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding American Business Corp and Zhihu Inc ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Zhihu Inc ADR and American Business is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on American Business Corp are associated (or correlated) with Zhihu. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Zhihu Inc ADR has no effect on the direction of American Business i.e., American Business and Zhihu go up and down completely randomly.

Pair Corralation between American Business and Zhihu

If you would invest  362.00  in Zhihu Inc ADR on December 28, 2024 and sell it today you would earn a total of  103.00  from holding Zhihu Inc ADR or generate 28.45% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Flat
Strength	Insignificant
Accuracy	95.24%
Values	Daily Returns

American Business Corp  vs.  Zhihu Inc ADR

American Business Corp

Risk-Adjusted Performance

Very Weak

Over the last 90 days American Business Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable fundamental drivers, American Business is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Zhihu Inc ADR

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Zhihu Inc ADR are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite fairly unfluctuating technical indicators, Zhihu demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with American Business and Zhihu

The main advantage of trading using opposite American Business and Zhihu positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Business position performs unexpectedly, Zhihu can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Zhihu will offset losses from the drop in Zhihu's long position.

The idea behind American Business Corp and Zhihu Inc ADR pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.